Shares of Anheuser Busch Inbev (EBR:ABI) NV ADR (NYSE:BUD) gained 3.8% in early action Friday after a rare upgrade of the beverage giant, which has been battling a slowdown at Bud Light amid a controversial ad campaign involving transgender influencer Dylan Mulvaney.
BofA Securities analysts upgraded AB InBev to Buy from Neutral and raised the price target to €65 (U.S. ~$68) from €59, offering about 28% upside from Thursday's closing price. This is the first time in three years the firm is recommending the stock and comes as the analyst sees a margin inflection.
"ABI’s margins are at an inflection point, in our view, as cost of goods sold (COGS) pressures have started to ease, >$1bn profit hit from Bud Light is in the base and a higher cost of doing business, which has weighed on margins in recent years, is now largely in the base too, we believe," the analysts commented.
"Following a 750bps organic EBITDA margin decline in 2018-23, we expect a +300bps increase in the next 3 years (versus consensus +200bps), resulting in much-improved profit growth: +7.4% organic EBITDA CAGR in 2023-26E (excluding LatAm South/ Argentina), top quartile in global staples, and +15% EPS CAGR," the analysts added.
Positive profit growth outlook should boost ABI's valuation due to strong earnings visibility in the current environment, driven by LatAm resilience, pricing power, COGS deflation, and deleveraging, the analysts added.